Alternative investments have the potential to contribute diversification benefits to a traditional portfolio, which is typically composed of stocks and bonds. During the first decade of the 21st century, many investors experienced what has since been coined the lost decade of stocks, and learned first-hand that that the traditional mantras of “buy and hold” and “a diversified portfolio of stocks and bonds” did not produce either the total return or the volatility control that had been expected. In particular, these portfolios performed especially poorly in market downturns, during which correlations across all asset classes increased.We believe that Alternative Investments, as an asset class, are capable of achieving superior risk-adjusted returns relative to traditional equities through the use of a broad investment toolset, which includes long positions, short positions (for hedging and speculative purposes), opportunistically holding a portion of the portfolio in cash, and tactically trading across global markets.
All data in the table below is based on the time period January 1, 2000 through August 31, 2011. See “Important Disclosures” below.
DIVERSIFICATION BENEFITS OF ALTERNATIVE INVESTMENTS
| January 1, 2000 through August 31, 2011 | Total Return | Annualized Return | Annualized Std. Dev. | Maximum Draw Down |
|---|---|---|---|---|
| Traditional Asset Allocation* |
33.51%
|
2.51%
|
13.31%
|
-44.84%
|
| Traditional Asset Allocation With Alternative Investments** |
42.35%
|
3.07%
|
7.82%
|
-30.03%
|
| Benefits of Adding Alternative Investments |
8.85%
|
0.57%
|
-5.50%
|
14.81%
|
CORRELATION TO THE S&P 500
| January 1, 2000 through August 31, 2011 | Overall | S&P 500 Positive Months | S&P 500 Negative Months |
|---|---|---|---|
| Traditional Asset Allocation* |
96.30%
|
89.40%
|
93.19%
|
| Asset Allocation With Alternative Investments** |
92.97%
|
85.43%
|
84.76%
|
| Benefits of Adding Alternative Investments |
-3.32%
|
-3.97%
|
-8.43%
|
IMPORTANT DISCLOSURES
General
Past performance is not indicative of future results. Investors in any asset class, including alternative investments, may lose money.
The above allocations are hypothetical, for illustrative purposes only, and are not intended to indicate specific investment recommendations or advice. The above results do not represent the performance of AI Advisors or any investment strategy of AI Advisors. Unlike the above, all investment strategies offered on the AI Advisors platform are actively managed, and will be subject to transaction costs and other expenses, advisory fees, and in some cases performance fees, which will reduce performance. The investment strategies offered on the AI Advisors platform have no relationship to the specific alternative investments included in the data above.
Asset allocation cannot eliminate the risk of fluctuating prices and uncertain returns. Neither the composite returns of the Traditional Asset Allocation, nor the underlying indices referenced above, represent the results of actual trading of any firm’s client assets. Since the allocation decisions for the composite were not made under actual market conditions, the composite does not account for the impact of financial risk in actual trading.
An investment in an alternative investment strategy is speculative and involves substantial risks, and should not constitute a complete investment program. Investments in alternative investment strategies are often highly speculative, illiquid, leveraged, subject to extreme volatility, subject to long holding periods, less transparent than public investments, subject to extreme restrictions on transfers, affected by complex tax considerations, highly dependent on the success of the individual managers, subject to high levels of fees and expenses which will reduce profits (if any), affected by potential conflicts of interests and other risks. These risks should be carefully considered by prospective investors. An investment in alternative investment strategies may not be suitable for all investors.
Information about the Asset Allocations
* The Traditional Asset Allocation represents a blended composite of hypothetical allocations made to the following indices in the following percentages: 40% allocation to S&P 500 (TR), 40% allocation to MSCI World ex USA (gross) and 20% allocation to Barclays Capital U.S. Aggregate Bond Index. This composite was developed by AI Advisors for comparison purposes only to illustrate the performance of a traditional diversified portfolio of stocks and bonds and was developed by AI Advisors with the benefit of hindsight.
**The Traditional Asset Allocation with Alternative Investments represents a blended composite of hypothetical allocations to the following indices in the following percentages: 20% to HFRX Equity Market Neutral Index, 20% to HFRX Equity Hedge Index, 20% to S&P 500 (TR), 20% to MSCI World ex USA (gross) and 20% to Barclays Capital U.S. Aggregate Bond Index. This composite was developed by AI Advisors for comparison purposes only to illustrate the potential benefits of adding Alternative Investments to a traditional portfolio of stocks and bonds (i.e., the Traditional Asset Allocation) and was developed by AI Advisors with the benefit of hindsight.
While the HFRX Equity Market Neutral Index and HFRX Equity Hedge Index are representative of certain segments of the Alternative Investment industry, they do not represent the performance of the industry as a whole. However, there can be no guarantee that the AI Advisors strategies and their corresponding risks will not be materially different than the strategies and risks represented by these indices.
Descriptions of Indices
The S&P 500 (TR, dividends and distributions reinvested) indices are market-capitalization weighted indices that include many of the most widely held companies chosen with respect to market size, liquidity, and industry (Source: S&P).
The MSCI World ex USA Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets excluding the United States. The MSCI World ex USA Index consists of the following 23 developed market country indices: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Israel, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom (Source: MSCI).
The Barclays Capital U.S. Aggregate Bond Index is a broad-based benchmark that measures the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market, including Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM passthroughs), ABS, and CMBS (Source: BarCap).
The HFRX Equity Market Neutral Index is a broad hedge fund index designed to be representative of the overall composition of the hedge fund universe implementing an equity market neutral strategy (source: HFR).
The HFRX Equity Hedge Index is a broad hedge fund index designed to be representative of the overall composition of the hedge fund universe implementing a long/short equity strategy (source: HFR).
The indices discussed herein: are included only for illustrative purposes; do not represent the results of actual trading of investor assets; are created, maintained and published by third-party index providers; are unmanaged; include the reinvestment of dividends; do not reflect the impact of transaction fees, management or performance fees or allocations, or other expenses that may be attributable to active management of assets; and are not available for investment
Why Invest with AI Advisors?
AI Advisors offers alternative investment strategies in client owned separately managed accounts. The AI Advisors’ platform provides clients with access to an investment program encompassing a select group of investment strategies utilized by alternative asset managers, with custody of client assets held at the custodian of a client’s choice*, in a liquid and transparent format, and at relatively low investment minimums. AI Advisors is the first platform to provide the potential benefits of Alternative Investments in a structure that is favorable to clients as well as the alternative asset managers providing advice to the platform. In comparison to the traditional private investment fund format used by many alternative asset managers, AI Advisors offers the following benefits to clients:
|
Private Investment Fund
|
AI Advisors Managed Account
|
|
|---|---|---|
| Custody |
Fund chooses Custodian
|
Client chooses Custodian
|
| Transparency |
Limited to None
|
Complete
|
| Liquidity |
Limited
|
Client Decides
|
| Minimum Investment |
> US$1MM
|
> US$100,000
|
| Reporting |
K-1
|
1099**
|
* Currently limited to Charles Schwab and Fidelity
** Tax reporting will be 1099 at the portfolio level, although actual securities in the account may have structures that can generate K1′s etc
References above to terms of private investment funds are provided for illustrative and comparative purposes only. The terms described above are not the actual terms of any particular private investment fund. There is a broad spectrum of terms applicable to private investment funds managed by alternative asset managers, including many funds with terms outside of the range of terms described above.
SCATTER PLOT
| January 1, 2000 through August 31, 2011 | Annualized Return | Annualized Std Dev |
|---|---|---|
| Traditional Asset Allocation* |
2.51%
|
13.31%
|
| Traditional Asset Allocation with Alternative Investments** |
3.07%
|
7.82%
|
| S&P 500*** |
2.74%
|
16.10%
|
RISK/RETURN – January 1, 2000 through August 31, 2011
CALENDAR YEAR RETURNS
| Calendar Years | S&P 500*** Annual Return |
Traditional Asset Allocation* Annual Return | Traditional Asset Allocation with Alternative Investments** Annual Return |
|---|---|---|---|
| 2000 |
-9.10%
|
-6.74%
|
3.24%
|
| 2001 |
-11.89%
|
-11.78%
|
-2.37%
|
| 2002 |
-22.10%
|
-13.27%
|
-4.72%
|
| 2003 |
28.68%
|
27.84%
|
16.27%
|
| 2004 |
10.88%
|
13.47%
|
7.57%
|
| 2005 |
4.91%
|
8.44%
|
5.35%
|
| 2006 |
15.79%
|
17.50%
|
11.89%
|
| 2007 |
5.49%
|
8.84%
|
6.43%
|
| 2008 |
-37.00%
|
-32.51%
|
-21.90%
|
| 2009 |
26.46%
|
25.63%
|
14.72%
|
| 2010 |
15.06%
|
11.53%
|
8.97%
|
| 2011 YTD |
-1.77%
|
-1.64%
|
-3.25%
|
IMPORTANT DISCLOSURES
General
Past performance is not indicative of future results. Investors in any asset class, including alternative investments, may lose money.
The above allocations are hypothetical, for illustrative purposes only, and are not intended to indicate specific investment recommendations or advice. The above results do not represent the performance of AI Advisors (or AI Advisors) or any investment strategy of AI Advisors (or AI Advisors). Unlike the above, all investment strategies offered on the AI Advisors platform are actively managed, and will be subject to transaction costs and other expenses, advisory fees, and in some cases performance fees, which will reduce performance. The investment strategies offered on the AI Advisors platform have no relationship to the specific alternative investments included in the data above.
Asset allocation cannot eliminate the risk of fluctuating prices and uncertain returns. Neither the composite returns of the Traditional Asset Allocation, nor the underlying indices referenced above, represent the results of actual trading of any firm’s client assets. Since the allocation decisions for the composite were not made under actual market conditions, the composite does not account for the impact of financial risk in actual trading.
An investment in an alternative investment strategy is speculative and involves substantial risks, and should not constitute a complete investment program. Investments in alternative investment strategies are often highly speculative, illiquid, leveraged, subject to extreme volatility, subject to long holding periods, less transparent than public investments, subject to extreme restrictions on transfers, affected by complex tax considerations, highly dependent on the success of the individual managers, subject to high levels of fees and expenses which will reduce profits (if any), affected by potential conflicts of interests and other risks. These risks should be carefully considered by prospective investors. An investment in alternative investment strategies may not be suitable for all investors.
Information about the Asset Allocations
* The Traditional Asset Allocation represents a blended composite of hypothetical allocations made to the following indices in the following percentages: 40% allocation to S&P 500 (TR), 40% allocation to MSCI World ex USA (gross) and 20% allocation to Barclays Capital Aggregate Bond Index. This composite was developed by AI Advisors for comparison purposes only to illustrate the performance of a traditional diversified portfolio of stocks and bonds and was developed by AI Advisors with the benefit of hindsight.
**The Traditional Asset Allocation with Alternative Investmentsrepresents a blended composite of hypothetical allocations to the following indices in the following percentages: 20% to HFRX Equity Market Neutral Index, 20% to HFRX Equity Hedge Index, 20% to S&P 500 (TR), 20% to MSCI World ex USA (gross) and 20% to Barclays Capital Aggregate Bond Index. This composite was developed by AI Advisors for comparison purposes only to illustrate the potential benefits of adding Alternative Investments to a traditional portfolio of stocks and bonds (i.e., the Traditional Asset Allocation) and was developed by AI Advisors with the benefit of hindsight.
While the HFRX Equity Market Neutral Index and HFRX Equity Hedge Index are representative of certain segments of the Alternative Investment industry, they do not represent the performance of the industry as a whole. However, there can be no guarantee that the AI Advisors strategies and their corresponding risks will not be materially different than the strategies and risks represented by these indices.
Descriptions of Indices
The S&P 500 (TR, dividends and distributions reinvested) indices are market-capitalization weighted indices that include many of the most widely held companies chosen with respect to market size, liquidity, and industry (Source: S&P).
The MSCI World ex USA Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets excluding the United States. The MSCI World ex USA Index consists of the following 23 developed market country indices: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Israel, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom. (Source: MSCI).
The Barclays Capital U.S. Aggregate Bond Index is a broad-based benchmark that measures the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market, including Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM passthroughs), ABS, and CMBS (Source: BarCap).
The HFRX Equity Market Neutral Index is a broad hedge fund index designed to be representative of the overall composition of the hedge fund universe implementing an equity market neutral strategy (source: HFR).
The HFRX Equity Hedge Index is a broad hedge fund index designed to be representative of the overall composition of the hedge fund universe implementing a long/short equity strategy (source: HFR).
The indices discussed herein: are included only for illustrative purposes; do not represent the results of actual trading of investor assets; are created, maintained and published by third-party index providers; are unmanaged; include the reinvestment of dividends; do not reflect the impact of transaction fees, management or performance fees or allocations, or other expenses that may be attributable to active management of assets; and are not available for investment